Non-Expected Utility Theories: Weighted Expected, Rank Dependent, And Cumulative Prospect Theory Utility
This paper discusses some of the failings of expected utility including the Allais paradox and expected utility's inadequate one dimensional characterization of risk. Three alternatives to expected utility are discussed at length; weighted expected utility, rank dependent utility, and cumulative prospect theory. Each alternative is capable of explaining Allais paradox type problems and permits more sophisticated multi dimensional risk preferences.
|Date of creation:||2002|
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- Matthew Rabin, 2000.
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